This paper provides new evidence supporting the rationality of closed-end fund discounts by analyzing the time-series dynamics of individual fund discounts and their relation to portfolio performance and manager turnover. We show that discount changes reflect rational investor learning about fund manager skills, as well as investor anticipation of manager replacement events. Specifically, prior to the replacement of a manager, the fund's discount initially increases as fund performance worsens - for domestic equity funds, the peer-adjusted discount increases by about 3 percent during year -2 (relative to the manager replacement event), which is sizable, compared to the average closed-end fund discount of 5.6 percent at the end of 2002. However, after this initial increase, the discount does not respond to continuing underperformance by the manager, indicating that investors rationally anticipate that the manager will be replaced. Overall, our study demonstrates that a significant rational component exists in closed-end fund discounts.